But it’s not just zero-rating where Britain falls behind. In an attempt to spare small-business owners the administrative burden of claiming and paying back VAT, we set the threshold for VAT registration rather high. In fact, we set it much higher than our European counterparts. If you report a turnover of £85,000 a year then you must register for VAT, incurring a tax bill of £17,000 minus any VAT reclaimed on inputs. As most businesses near the threshold are sole-proprietorships, where their inputs are low and most value-added comes from their own work, they are unlikely to be able to claim back much.

The result is a situation not too dissimilar to the problems caused under the slab system for Stamp Duty. Earning one extra pound can lead to a massive tax bill. As a result there is an overwhelming incentive for firms approaching the threshold to refuse work, under-report turnover or even take extra long holidays . This is seen in the data with firms massively bunching around the threshold.

This is a serious problem. When we worry about a complex tax system, we are not worrying about the need for HMRC and KPMG having to hire extra accountants, rather we are concerned that it is leading people to behave in ways that will destroy productive economic activity.

So what to do? I think the case for reducing the VAT registration threshold is overwhelming. If we brought level closer to the EU minimum threshold of €10,000, it would solve the bunching problem and raise around £2bn for the Treasury in the process. It would mean that more small businesses will have to bear the admin of registering for and paying VAT, but the harms can be mitigated. First, most will use the VAT Flat Rate Scheme which eliminates the need to claim and register every purchase and instead estimates a flat rate on your total turnover based on the industry you are in. So for instance a corner shop owner with lots of input costs will pay a flat 4% rate, while an IT consultant with few input costs will pay 14.5%. Second, we could use the additional £2bn in revenue to cushion the effect of the tax rise by raising the national insurance thresholds.

VAT is one of the least-bad ways to raise revenue. In theory. In practice the UK's VAT falls far short of the ideal. Fixing VAT would boost productivity, efficiency and give us the revenue to cut other more harmful taxes.